Despite low mortgage volumes and thin interest margins in the first half, Fannie Mae and Freddie Mac announced another year of record earnings for 1995.

The earnings were fueled by spectacular growth in the loan portfolios at both agencies as long-term rates fell in the second half of 1995 and consumers flocked to 30-year fixed-rate mortgages.

With long-term rates expected to remain low this year, analysts expect that both mortgage agencies will have a healthy supply of loans for their portfolios, and are forecasting solid earnings growth again in 1996.

At Freddie Mac, which is the smaller of the two agencies, the mortgage portfolio grew 47.5%, and at yearend loans totaled $107.4 billion.

Net interest income, which consists largely of interest on these mortgage holdings, was $1.4 billion at Freddie Mac, up 26% from 1994. Net income for 1995 was $1.09 billion, up 11%.

Fannie Mae's mortgage portfolio at yearend was $253 billion, an increase of 14.5%. Net interest income was $3 billion, 8% more than in the preceding year. Net income was $2.14 billion in 1995, after a special contribution of $350 million to the Fannie Mae Foundation - only slightly higher than earnings of $2.13 billion in 1994.

Net interest margins were low at both agencies in the first half of the year, when the supply of fixed-rate loans was low. But by the second half, margins began to climb again, and they were 119 basis points at Fannie Mae and 122 basis points at Freddie Mac by yearend.

Analyst Thomas O'Donnell of Smith Barney said he expects margins to climb another basis point or two at Fannie, and fall by the same amount at Freddie.

Because the agencies' loan purchases are so large, analysts worried last year that through their purchases, the agencies were driving up prices and eating into their profitability. But Bruce Harting, an analyst at Salomon Brothers Inc., said he believes both agencies are doing a good job of managing the impact of huge loan purchases on their interest margins.

If the Federal Reserve pushes short-term interest rates down this year, as is widely expected, but long-term rates remain at current levels, Mr. Harting said margins would widen, as Fannie Mae and Freddie Mac issue cheaper short-term debt to fund their mortgage purchases.

But if a short-term rate cut leads to a parallel drop in long-term rates, Mr. Harting expects a wave of refinancings that would remove the higher-yielding loans from the books at both agencies - leading to a drop in the interest margin. In that scenario, loan volume would pick up at Fannie Mae and Freddie Mac, but the accompanying margin drop would mean that the overall result would be "a wash," Mr. Harting said.

Freddie Mac's earnings this year were dented by poor credit performance of loans originated in California before 1992. The agency's provision for mortgage losses was $255 million in 1995, compared with $200 million in 1994.

Expenses on its foreclosed-realty operations were also sharply higher in 1995, $286 million versus $225 million in 1994.

Mr. Harting expects that the agency will continue to have substantial credit expenses in 1996, but that they will trend downward.

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